The false burden of social cost on renewable energy

Last Updated: Wednesday 30 August 2017 | 13:52:55 PM

The survey claims large amount of land is needed for solar plants, but these plants use barren, unproductive land (Credit: Richa Sharma/CSE)

The second volume of Economic Survey released by the Ministry of Finance earlier this month raised issues with investing in renewable energy attributing a social cost of Rs 11 per unit of electricity, three times to that of coal. This gives the wrong signal to the investors, more or less questioning why renewable energy is being pushed so hard.

The estimated social cost of Rs 11 per unit has created confusion and there have been critiques of how this number has been derived. There are several components of this estimate—the private costs of generation, the opportunity cost of land, social cost of carbon, health costs as well as the costs of stranded assets. In simpler terms, it says, more investment in wind and solar would reduce the operation of coal power plants, which in turn will lead to job losses and coal plant loans turning bad in the books of banks. This is similar to the argument USA President Donald Trump makes for increasing investment in coal mining jobs.

Missing costs of coal plants

The survey alleges that shift in renewables would leave conventional power plants underutilised, lower than their maximum technically feasible level. The investments made in these plants would be deemed “sunk” and would result in loss of revenue. These stranded assets will impact the banking sector. It is estimated the total advances to coal sector were Rs 5,732 crore with ratio of non-performing assets at 19.8 per cent. Why this was included in social cost estimate is unclear.

The survey says that the social costs would include the opportunity cost of land required for solar. However, no specific cost is mentioned, which some may argue, is the same as the cost private developers pay for it, which is already reflected in the cost of generation, even if it is as low as Rs 2.44. In addition, the opportunity cost of land is not put on the social cost of coal power plants.

Wrong estimates

The estimate assumes that land required of coal power plant is around 2,023 square meters or 0.5 acres per megawatt (MW), while for solar its 10 times in comparison. This is considered a barrier in solar development. According to Centre for Science and Environment, on an average, coal power plant require 1.7 acres of land per MW but this does not include the area under coal mines, which increases the requirement to 5.95 or 6 acres per MW. According to Ministry of New and Renewable Energy, the land requirement for ground mounted solar is around 5-6 acres per MW.

Apart from underestimated land requirement for coal, the survey also does not consider installations on rooftops and already developed areas, which will reduce the space needed.

According to an analysis by Bridge to India, a renewable consultancy, half the desert area in Barmer, Rajasthan can install 1,000 giga watt (GW) solar. Solar plants largely use barren and unproductive land. Thus, 1000 GW can be installed in the 3.5 per cent of the waste land in the country.

The survey also specified that there are 115,000 pre-mature deaths every year, especially coal miners and estimated the total monetary cost is around US$ 4.6 billion. Another recent study published in Lancet Respiratory Medicine journal claimed that 800,000 deaths in India occur due to ‘chronic obstructive pulmonary disease’, and 100,000 more due to asthma. It is a safe assumption that a percentage of these deaths are caused due to pollution caused by these thermal power plants.

Renewable sector enjoys some incentives like the priority access to the grid. These benefits or subsidies are being phased out gradually as stated in the draft National Energy Policy. Subsidy for solar has been reduced from Rs 450 crore in 2015-16 to Rs 15 crore in 2017-18. The remaining ₹405 crore has been attributed to wind for ‘generation-based incentives’, the scheme has been scrapped. From April 1 this year, tariffs from wind would be discovered through reverse bidding.

The survey cautions investment in renewable energy and suggests a “calibrated” approach due to the total cost accrued to the society. In essence, it suggests to slow down the pace of renewable energy development. The survey mentions that renewable energy would form 43 per cent of the installed capacity in the country in 2027, the share in electricity supply would be only around 25 per cent. So, it is evident that coal power would be playing a significant role in the future as well.

Given the intermittent nature of solar and wind energy, India would depend on coal or storage for regular supply of electricity. So, it is difficult to understand why these misleading estimates of social costs have been added to renewable energy burden when it is clear that coal is always going to dominate India’s energy mix. India is one of the most vulnerable countries to the impacts of climate change and we should be doing everything in our power to move away from coal, towards renewable energy. This move seems counter-productive to ambitious stance taken by the Modi government.

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Given the existence of enormous subsidy and cut-throat competition under the reverse bidding regime, recent price discovered under solar bid (Rs.2.44/kWh) are not a real reflection of its true cost. Social cost of RE is estimated factoring the mentioned indicators.

- Intermittency of solar and wind, including the cost of storage as required in the system, in the long run
- Much greater capacity of solar or wind need to be established as compared to conventional source to generate equivalent quantum of electricity (CUF solar:17-19%, Wind:21-23%, PLF thermal:around 60% and above)
- Cost to acquire approximately 4-5 acre of land required for each MW of solar, much higher than the thermal power source, would inflate further if political and regulatory costs are also included.
- Given the renewables also serve the purpose of providing energy access to rural and far-flung areas, developing infrastructure and grid network is very cumbersome task and also adding to substantial cost.
- Since the segment is marked by remarkable subsidies; the mentioned estimation is based on scrapping all the existing and hidden subsidies, such as, capital subsidy, interest subsidies, tax holidays, GBI, AD, VGF, custom-excise duty exemption, preferential treatment for RE 'Must-run-status', and many more.

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